Labor Day 2014:Minimum Wage to Rise but Challenges Remain

August 13, 2014

Labor_Day_Release_2014

(Updated with edits August 14,
2014)

A
strong state economy is one that provides all residents with
opportunity and a high quality of life - not least of all, workers and
their families. As we head toward Labor Day 2014, there is both cause
for concern and reason to celebrate the current well-being and future
prospects of workers in Massachusetts.

Worryingly, over the last several decades, stagnant or declining wages
have become the "new normal" for most workers in the U.S. This leaves
them with lower incomes, a reduced quality-of-life, and fewer
opportunities.1

This year, however, the people of our commonwealth and our elected
officials took action to push back against this trend. Through their
efforts, the state minimum wage now will rise by a dollar a year for
each of the next three years, raising the wages of about 600,000
Massachusetts workers. (Read more about the impact of the minimum wage
increase here.)
This will directly help these low wage workers and
their families. And as these workers are able to buy more
goods and services in our local communities, the wage increase can
strengthen our state economy.

Yet our state, like the rest of the nation, still faces troubling
trends: the ongoing concentration of income and extreme
wealth makes our economy more unstable and reduces prospects for future
economic growth.2
While deeper solutions
to these problems will require action at the federal level, the
Commonwealth can take important steps to improve both working
conditions and access to opportunity for Massachusetts workers. These
steps include expanding access to earned paid sick time and investing
in early education and childcare, higher education and workforce
training opportunities.

In the pages below, we present charts and data to describe and explain
these trends and discuss further the options for state-level reforms.

Identifying
Challenges

Massachusetts' workers - particularly those from moderate and low
income households - face substantial challenges. Chief among these is a
decades-long trend of stagnant or lackluster wage growth (a
trend
seen
throughout the U.S., including Massachusetts).3
Notably, this weak wage growth occurred even as overall productivity
continued to rise.4
Compared to U.S. workers in the 1970s, today’s workers are
producing more than twice as many
goods and services for every hour they work. And yet in recent years,
that has not translated into corresponding wage and income gains for
most workers.

Throughout the 1950s, 1960s and much of the 1970s, wage and income
growth grew in lockstep with rising productivity (see chart, above).
And during these years, these gains were shared broadly and equitably -
U.S. households at all income levels experienced similar rates of
income growth during this period.5
High levels of public and
private sector unionization during this period help explain much of
this pattern (though other factors also played a role).

Starting in the later 1970s, however, those at the top began to take an
increasingly large share of income gains; over the last three to four
decades, productivity gains have not been matched by accompanying gains
in worker compensation (see chart, above). This shift
occurred both at the national level and here in
Massachusetts.6

Had overall income growth in Massachusetts during the 1979-2011 period
instead been shared equally among high-, middle- and low-income
households – as was the case during the 1950s, 1960s and much
of the 1970s - 80 percent of Massachusetts households would have
experienced substantial additional income gains (see chart,
below).7
Instead, these households, on average, now
are earning $10,000 - $15,000 a year less than they could be, had the
earlier “shared growth” approach been continued.

Meanwhile, households at the 90th percentile are averaging about the
same level of income as they would under a shared growth approach.
Those in the top 1 percent, however, are earning more than twice as
much as they would have, had the pattern from the 1950s through the
1970s continued through to the current era (see chart, above).8

There are several fundamental problems that arise from stagnant wages
and increasing levels of extreme inequality. First, without meaningful
income gains (despite large gains in productivity), many Massachusetts
workers continue to struggle just to meet their basic needs, while
facing a limited set of opportunities. Second, as income and wealth
become heavily concentrated in the hands of a select few, the economy
becomes unbalanced, potentially making it more prone to downturns and
recessions, and constraining prospects for robust growth.9

State-Level
Responses

Many of the best responses to these nationwide problems of wage and
income stagnation and the growth of extreme inequality lie at the
federal rather than the state level. These include improving workers'
ability to form effective unions; boosting employment and wages through
monetary and fiscal policy; ensuring that international trade policy
benefits rather than undermines American workers; regulating the
financial sector so that it serves rather than destabilizes the broader
economy; and many more.10

Massachusetts, however, has taken an important step at the state-level
toward counteracting these troubling wage and income trends. As noted,
by 2017 the state minimum wage will rise to $11 an hour, benefiting
over 600,000 workers in the Commonwealth and some 240,000 children who
live in affected households. For a full-time minimum wage worker, this
wage increase will translate into an inflation-adjusted gain of $4,600
in additional annual income.

Still other options exist for improving the incomes and working
conditions of Massachusetts workers by strengthening state labor
standards. For example, currently about one-in-three workers in the
Commonwealth does not have access to earned paid sick time (EPST).

And more than half of lower income workers do not.11
(To read
more about EPST, see MassBudget's EPST
FAQs)

For a worker without EPST, taking time off from work to get well or to
care for a sick child – or even to make a necessary visit to
a doctor – means a loss of much needed pay and possibly the
loss of his or her job. One proposal under discussion would allow
workers to earn an hour of paid sick time for every 30 hours
worked, up to a maximum of five sick days per year. Ensuring that
Massachusetts workers have access to earned paid sick time can improve
individual and public health, and increase workers’ economic
security.

In addition to strengthening state labor standards, Massachusetts can
improve access to economic opportunity in a number of other ways.
Investing in early education and care can make quality childcare more
accessible and affordable for working parents. This in turn can expand
work options and raise family incomes while helping children prepare
for success in kindergarten and beyond; studies show that quality early
care improves later academic and social outcomes for kids. (Read more
here
about the positive effects of quality early education and care.)
Since 2001, state investment in these programs has been cut by close to
$170 million a year, a reduction in annual funding of 23 percent
(adjusted for inflation).12

Similarly, since 2001 the
Commonwealth has cut funding for higher
education by some $320 million or 21 percent (adjusted for
inflation).13
These cuts have important implications for
individual worker’s and the state economy: on average,
workers with higher levels of education have both higher incomes and
lower rates of unemployment (see MassBudget's State of Working
Massachusetts: http://www.massbudget.org/reports/swma/index.php
).

Investments in workforce
training also can provide workers with
opportunities to improve skills and raise incomes. Here again,
Massachusetts could choose to reinvest in these programs; since 2001,
annual funding for workforce training has dropped from $173 million to
$125 million or 28 percent (adjusted for inflation).14
(For
more on workforce training, see MassBudget's new Jobs &
Workforce Budget, an online resource: http://workforce.massbudget.org/
)

With smart policies, the
Commonwealth can begin to reverse the growth
in extreme inequality that has occurred since the late 1970s. This in
turn can expand opportunity and improve living standards for workers
and their families, from the Berkshires to Buzzards Bay.